Clintonism in One State
Adams, James Ring
James Ring Adams Clintonism in One State Gov. Lowell Weicker won liberal plaudits when he passed Connecticut's first-ever income tax two years ago. It is destroying the state's economy. His next...
...Never mind that a broad spectrum of economists warned that any kind of tax increase would intensify the recession...
...In mid-January, Weicker, a model of political correctness, gladly took the deal...
...The key word in this exercise was "relative...
...The new-tech entrepreneurs will give many reasons for the drag they encounter...
...In this view, the paradigm of the state economy is the ordeal of Pratt & Whitney...
...More computer runs over the years, by Genetski, Laffer and others, have confirmed this effect, and even produced a prediction...
...Weicker's plan folded this tax into the new income tax, cutting the rate from 7 percent to 4.5 percent...
...Connecticut's largest private employers included United Technologies Corporation and the Electric Boat division of General Dynamics, and for decades there had been worries about excessive dependence on the defense industry...
...But this was just the start of the story...
...But an identical arrangement with Las Vegas raised Weicker's moral hackles, Not only did he spurn Wynn, he broke up the gambling coalition by offering a tax break to the jai alai players and greyhound runners...
...Its brass works and builders of steam locomotives faded out, but jet engines and computer software took their place...
...In spite of massive layoffs at nearby Groton, headquarters of the nuclear submarine fleet, the casino drew enough business to make Connecticut's southeastern corner the fastest-growing part of the state...
...When military orders collapsed, the airlines were reeling from their own Cold War, following deregulation, fare wars, and the oil-price shock from Desert Storm...
...All this changed in the last recession, which began in February 1989 and in Connecticut has not yet really ended...
...That the state that once boasted the most vibrant economy in the Northeast should turn to gambling for its salvation represents a comedown of classical proportions...
...build casinos in Hartford and Bridgeport...
...The Mashantuckets had paid their first installment by the end of the legislative session, allowing Governor Weicker to declare a budget surplus...
...These didn't come solely from the left...
...Laparoscopic surgery, using fiber-optic television images to guide instruments that work within the body, has given rise to a whole new medical supply industry around Danbury, with its own new technology of toolmaking, ultrasonic welding...
...One of the first studies of the tax found earlier this year that it fell proporthan four to one...
...Even worse, Connecticut stands as a reasonable microcosm for the national economy, as President Clinton's tax increase takes effect...
...But this is the same corporatist spiral on another level: After making life miserable for all entrepreneurs, the state tries to repair the damage with a select few...
...farmers spent their winters carving wood to look like nutmeg cloves, which pedlars would sell in their summer rounds to unsuspecting Midwesterners...
...When Weicker argued that his income tax was needed to salvage the business climate, he pointed to the 86,000 jobs that had then been lost in the recession...
...workers who saw income taxes taking a bite from their pay stubs turned around and demanded higher wages to keep up their take-home pay, thus increasing labor costs...
...Its personal income grew by 2.3 percent, just half of the national average...
...This is not only a vicious circle, but a spiral which at each turn gives government a greater, role in the corporations it sets out to help...
...For simplicity, they used the growth in each state's personal income, as a proportion of the national average...
...Nor, he adds, "when tax cuts have produced anything but economic growth...
...States with rapidly rising burdens went into a tailspin...
...The full impact of Weicker's tax bill is more than a billion dollars a year...
...But in recent months it has fluctuated below the national rate...
...The income tax was billed as a conservative pro-business policy, pushed by a myopic business lobby...
...The job loss translates into an unemployment rate that was well below the national average as the recession took hold, but peaked earlier this year substantially higher than the national rate...
...T he Mashantucket Pequot Indians, the lucidest 200 people in America, hit paydirt in a quirk in federal law, and turned their high-stakes bingo game in Ledyard into the nation's most profitable casino...
...12 issues only $35) Call The American Spectator at 1-800-524-3469 (6:30 am to 9:30 pm, Eastern Time) which could propel the state economy into the next century are gasping for air...
...Senate, he lost his seat in 1988 to the popular former New Haven congressman and state attorney general Joseph Lieberman...
...It was one of only four states that grew less than the inflation rate, meaning that Nutmeggers actually lost money over the period...
...The Republican, John Rowland, wasn't helped any by his position as a member of Congress, even though he campaigned strenuously against a state income tax...
...Rhetoric from both Weicker and Clinton acknowledges that these garage companies become the Apples and Microsofts of the future...
...At the end of August, Weicker managed to convert three senate Democrats, later giving one of them a cushy state job, and at 3:06 a.m...
...When outbreaks of peace put a damper on Air Force procurement, Pratt turned for jet-engine contracts to the airline industry...
...Service producers are down by 1.1 percent, including a 2.5 percent drop in FIRE (finance, insurance and real estate...
...The income tax, he told the state's business and industry lobbyists, would shift the burden away from business and onto individuals...
...Pratt said it was moving 2,300 of the threatened jobs to its plants in Maine and Georgia, where labor costs were $6-8 an hour lower...
...Connecticut has destroyed its economic recovery by increasing taxes by a billion dollars and above all by imposing a personal income tax where none existed before...
...Welfare dependency in Hartford, the capital, touched more than 20 percent of the population, and the social disintegration in Bridgeport and New Haven accelerated with the growth of the drug gangs...
...Telecommunications equipment makers in nearly incomprehensible press releases describe modems that will vastly speed the flow of data from one computer to another...
...So Genetski and his colleagues decided to give the tax rises more time to take effect...
...Weicker vetoed their first budget in June...
...But the new-tech companies (The pessimism was well founded, since the ripple effect of Pratt's closings could have destroyed a host of smaller machine shops and service companies in its supply chain and cost the state another 20,000 jobs...
...By 1991, it was 7 percent above the national average...
...The state's solons spent their final days in Hartford squabbling over the division of the "Indian money...
...Wynn says his business inspiration is Walt Disney, and his Mirage Resort is a Las Vegas fantasyland, where white tigers live in a habitat along the corridor to the casino, dolphins sport in their own pool, and an imitation volcano spews 50-foot flames at night...
...By May a coalition of Republicans and Senate Democrats had solidified behind a budget balanced by everything but a levy on incomes...
...Connecticut friends saw him as the savior of the state's run-down cities...
...As its neighbors imposed state income taxes, Connecticut's legislature, dominated by the colorful conservative J. Henry Roraback of Litchfield County, rejected the measure as a matter of faith and policy...
...Significant growth comes only in health services, legal and professional, and state and local government...
...The state already levied a stiff dividends-and-interest tax, defining returns on investments as "unearned income...
...Cibes, professor of government at Connecticut College, former assisThe Connecticut Business and Industry Association endorsed the tax and still supports it...
...In early July, at the start of the new fiscal year, the senate killed the income tax again...
...An academic group monitoring the state economy projects that an average of 25,000 a year over the next three years will be packing their U-Hauls, and this estimate may be low...
...The Democrats were discredited by the red ink generated by Governor William O'Neill...
...So the state used the revenues from the new tax to give the company inducements to make up for the increased "I can't find one experience for any country throughout all history in which a net tax increase has resulted in anything but disappointing economic conditions," Genetski says...
...The Bureau measured state performance in the economic recovery by taking personal-income growth from the trough of the recession (the first quarter of 1991) to the first quarter for1993...
...But an identical arrangement with Las Vegas raised Governor Weicker's moral hackles...
...Its water-powered factories gave way to coal-fired boilers...
...Topping the Mashantuckets, he said that he and his coalition of fronton and dog-park owners would guarantee the state a take of $130 million in slot video taxes...
...Weicker went out in his shirt-sleeves to confront the protesters and had to be pulled from the jostling crowd by state troopers...
...For this total of eight quarters, Connecticut finished dead last...
...As of the end of this spring, goods-producing industries had declined by 4.4 percent over the year, with a 14 percent drop in makers of "transportation equipment" (read: Pratt...
...on August 22, the senate voted 18-18 on the tax...
...The state's fixation on Pratt underscored its neglect of the real victims of its tax policy, the small entrepreneurial companies pioneering new technologies...
...When they allowed a three-year lag between the tax change and the economic results, the match was dramatic...
...The final impact remains to be seen...
...too much of the state's manufacturing base had developed the bad habits engendered by military procurement...
...As a double backup, Pratt kept going even when new jet engine sales dropped off because it also had a corner on refurbishing and maintaining the engines already in use...
...In an emotional and embittered vote, the Machinists' union membership narrowly approved a package of pay cuts...
...The Defense Defense Weicker's defenders look at these numbers and say: It isn't our fault...
...There are the high business costs of a state with one of the nation's most expensive worker's compensation systems and a bankrupt unemployment insurance trust fund...
...CI The American Spectator November 1993 49...
...The one difference is that Washington won't have the Indians to bail it out...
...Weicker responded by giving 20,000 state workers a furlough and closing state parks over the Fourth of July weekend...
...He telegraphed his solution even before his inauguration, when he chose William J. Cibes, Jr...
...State economic officials labored with the company and the Machinists' union to reduce labor costs enough to keep some of Connecticut's production lines open...
...Businesses and industries seem to have a natural life span, and Connecticut has already gone through many generations of technology...
...And it's during these periods of technological transition that tax increases can do the most damage...
...When Cibes and Weicker took office in January 1991, the deficit projections were topping...
...He lost...
...Weicker's basic argument appealed to the upper-crust corporate mentality...
...1 billion...
...Part of the package was a gradual reduction of the top corporate tax rate...
...But the higher taxes began to drive jobs from the state...
...In 1988, the state tax burden was about 7 percent below the national average...
...T his is a pattern likely to intensify as the full impact of the income tax begins to be felt, which Genetski's computer runs indicate will happen in the third year after its full bite...
...In early August he vetoed another budget, denouncing his opponents with a charactertionately less heavily on the highest brackets than on the middle class...
...The theory here was basic...
...Far from class treason, Weicker's policy drew significant support from wealthy businessmen...
...But Weicker signed the offer with "the sovereign nation of the Mashantucket Pequots" just as Las Vegas gaming mogul Steve Wynn began to lobby seriously for plans to James Ring Adams is business editor of the Waterbury Republican-American...
...First he measured the total burden of state and local levies (as a percent of total personal income) for each state...
...Weicker inherited a $7 billion budget with a built-in and growing deficit of nearly $500 million...
...There's the "credit crunch," the aversion to risk of a state banking system that has just gone through a Texas-style real estate and fraud debacle...
...The alloy metallurgy of the state's Brass Valley, once the very model of a dying industry, is evolving into materials technology at the cutting edge of superconductivity...
...The Mashantuckets offered Governor Lowell P. Weicker, Jr...
...There is a lively debate over the causes of this collapse, and many, including the politicians in charge, want to portray it as the result of external pressures...
...if the collections on that tax fell short, he personally would arrange to make up the difference...
...In May 1993, the state rate was 7.4 percent, compared to a national rate of 6.9 percent...
...Carriers and leasing companies were cancelling aircraft orders as fast as they could break their contracts...
...Famous for his Golden Nugget and Mirage resorts, Wynn was born in New Haven but moved at an early age as his father, a professional manager of bingo parlors, followed the charity gambling business to upstate New York...
...Weicker even brags about a number of state programs aimed at the "new-tech" infants...
...How to Destroy an Economy The Nutmeg State has been a center of Yankee commerce and invention since the eighteenth century...
...And that was not lost on citizens...
...A state with a high tax burden might be doing well: a state with a low tax burden might be doing poorly...
...Efforts to establish new industries, of which there are many, labor against some invisible drag...
...By this standard, the country is in for years of stagnation, frustrated technological development, and growth in government employment...
...The money in theory compensated the state for the taxes it might have collected if other gaming outlets, like jai alai frontons and dog-racing parks, could also install the machines...
...As should be well known, in the middle of California's tax revolt in the late 1970s, Arthur Laffer ran a comparison of major states with high and low property taxes, and found a close relation with their economic performance...
...If a state suddenly increased its tax burden when everyone else held theirs steady, economic activity would roll across the border to more stable, lower-cost environments...
...Less well known is that a young economist at Chicago's Harris Trust and Savings bank carried the research even further...
...Why Business Was Wrong Although Weicker and Cibes defend the income tax to this day, it's hard to see how their arguments could satisfy any economically literate observer of the past two decades...
...There is the lingering hostility of large parts of the state bureaucracy...
...Its nickname referred to a less savory side of its ingenuity...
...a cash contribution of $100 million toward his budget deficit in return for exclusive rights to the slots...
...as his chief budget adviser...
...In a capitol coup, legislative leaders refused to schedule a vote on casino gam44 The American Spectator November 1993 bling, and Wynn left the Connecticut political tables a lot like his own customers, considerably lighter in his pocketbook...
...To avoid that political taboo, the legislators were willing to expand the, base of the sates tax, already a high 8 percent, raise business taxes, and defer paying off the previous year's budget deficit...
...One local analyst called it the most significant development in the state's aerospace industry since the founding of Pratt & Whitney itself...
...Lieutenant Governor Eunice Groark cast the tie-breaking vote...
...As private enterprise wanes, the state government is trying to save jobs by a form of state industrial policy that some of Clinton's economic advisers would find congenial...
...Even though political winds have shifted, and the wind-sock arbiters of public opinion would like to write off the Reagan years, "supply-side economics" now has the support of a substantial body of evidence, much of it from state governments that have cut or raised taxes...
...These statistics are a pale reflection of the depressing reality that weighs daily on more than 3 million people...
...Even worse, the image of wealthy suburbanites and Yale-educated gentleman farmers obscured serious problems of urban poverty...
...In February, the governor announced a budget based on the income tax...
...This result began to show up with a one-year-lag, but not dramatically...
...The job impact shows up in the breakdown of employment provided monthly by the state Labor Department...
...More than 100,000 jobs vanished after the income tax...
...It started to rise then, with a surge from 1989 to 1990 that put it at parity with the 50-state index...
...The new technologies are there to take up the slack...
...Then Genetski and his colleagues tracked each state's relative economic performance...
...Some of the state's decline followed organically from its economic flowering...
...Along the way, he made a counter-offer for the video slot business...
...A host of auxiliary industries flourished in its train, building everything from the tools Pratt used in its ,^1111111111 The American Spectator November 1993 47 plants to the guidance systems in the airliners' cockpits...
...The much-bruited problem of "defense conversion" is a special case of the same phenomenon, with the difference that government-subsidized industries are making way for private enterprise...
...But this purely defensive "victory" showed the circular logic of the Weicker administration...
...He made plenty of hay from the incident later, accusing the anti-taxers of hate-mongering...
...They reasoned that people might wait a year or two before reacting to the tax trend...
...As the home of Samuel Colt and Eli Whitney, it was a hotbed of manufacturing technology...
...An anti-tax rally at the state capitol that fall drew an angry, shouting throng of 40,000...
...But this time around, nothing worked...
...The job loss was only five percent of the recession's total, but the psychological impact on the state was devastating.labor costs...
...The Fairfield County delegation provided stronger-than-expected backing...
...A computer study by the Waterbury Republican-American concluded that if the cap had gone into effect a decade earlier, it would have eliminated the accumulated deficit that was used to justify the income tax...
...After a stint running a Squibb-financed foundation, in 1990 he entered a three-way race for governor as an independent...
...The Weicker administration brags that its response to the Pratt disaster was one of its finest hours, and indeed it may have been...
...Much of its defense industry collapsed with the end of the Cold War...
...Two years later, the job loss stands at 200,000...
...The casino's managers wanted to keep the game going by introducing the next wave in gaming technology, video slot machines, so they decided on a bold stroke, not only to get permission for the games but to establish a monopoly...
...The Predicted Disaster Connecticut has become one of recent memory's more dramatic examples of a tax-induced disaster...
...Robert Genetski decided to track relative performance of all fifty states...
...In mid-1991, newly elected Governor Weicker bullied and harangued the legislature into passing a state personal income tax...
...The academics offer one consolation: if these people had stayed, the unemployment rate would have been even higher...
...Weicker's tax agents exerted another form of persuasion at the ground level...
...Local companies provide "attitude (cq) sensors" that keep satellites in stationary orbit, and they insulate chambers that chill off to a few degrees above absolute zero, at which molecular motion ceases...
...Yet a sharp break in policy in the last two years has exacerbated all these problems...
...But a lot of the steam left the movement in 1992 when its organizer, former legislator Tom Scott, decided to run for Congress...
...the opposition was populist and intense...
...Pratt is a division of the military industrial giant United Technologies Corporation, the state's biggest manufacturer...
...Such a corporate state has always had its appeal to the bureaucracies of both big business and big government, the two cultures that shaped Lowell Weicker...
...His next move: casino gambling...
...But evidence is building that lays the blame on the kind of economic policy that now dominates the Clinton administration...
...Hours later, the House passed the tax by a vote of 75-73, with three Democrats and three Republicans crossing over to Weicker at the last minute...
...Eager to gain a new frontier for gaming, Wynn pumped a million dollars last spring into lobbying for legislative approval...
...A subsidy from Indians was one thing...
...Genetski looked at the two numbers together, and—lo and behold, A subsidy from Indians was one thing...
...Connecticut now may be the future of America...
...Even the refurbishing business mysteriously disappeared, as the airlines cannibalized the engines on their vast fleets grounded in the Arizona desert...
...Manufacturing equipment, for instance, now included newspaper printing presses...
...But there is also the state income tax, which falls heavily on the high-paid, highly skilled engineers the new companies need, not to mention on the entrepreneurs themselves...
...And this was the key...
...48 The American Spectator November 1993 IFStatement of Ownership, Want to place a subscription order for The American Spectator...
...The American Spectator November 1993 45 tant minority leader and head of the finance committee in the state legislature, was one of the legislature's leading advocates for an income tax...
...Income growth in Connecticut is now the lowest in the nation, and itmay soon yield its status as the wealthiest state to New Jersey...
...Weicker found another upper-class constituency for the tax...
...The economic drain shows up in a July release from the Commerce Department's Bureau of Economic Analysis, which compiles state personal-income figures...
...Fugitive New Yorkers moved their homes and their millions into J. Henry's backyard...
...Defense-dependent Connecticut has been hammered by cutbacks in high-tech military hardware, and in a real stroke of bad luck its civilian fallback, the commercial airline industry, is going through its own traumatic shakeup...
...Not only did he spurn Wynn, he broke up the gaming coalition by offering a tax break to the jai alai players and greyhound runners...
...The Connecticut Business and Industry Association, the "establishment" business lobby, endorsed the tax and still supports it...
...But none of this indicated just how stubbornly Weicker would fight for the tax...
...Emigration from Connecticut was already fourth highest in the nation, BIT (Before the Income Tax...
...Only those residing on Pluto could fail to see the empty office buildings, the closed factories, the forest of 'for sale' signs," he said in a typical live broadcast...
...Passing the Income Tax Lowell Weicker is a wealthy liberal Republican from the posh executive suburbs of Fairfield County...
...Several of these are now on his payroll...
...The number-one state, North Dakota, grew by 8.7 percent...
...In the crucial step, they began to test the impact of the rate of change of the tax burden...
...It is an obvious cause of this dramatic decline, but the state is extremely reluctant to face it...
...States with a shrinking tax burden showed the highest growth...
...The gray areas in the state tax on manufacturing equipment allow a number of arbitrary decisions, and the tax collectors, some businessmen say, began to extort support for the income tax by making rulings that vastly extended the scope of the existing levies...
...46 The American Spectator November 1993 there was no relation...
...From March 1990 to March 1991, the state lost a net total of 47,000 people, 1.4 percent of its population...
...His family derived its wealth from the Squibb pharmaceutical corporation...
...In the same election, however, statewide voters made their most decisive statement on the issue in a referendum for a constitutional cap on state spending...
...Connecticut now lags in all the indicators of recovery, and was the only state last year reporting a net population loss...
...As its earnings dropped like a stone, Pratt announced a "restructuring," an "expansion of the restructuring," and finally late this spring, a total of 9,000 layoffs and the closing of all its manufacturing in Connecticut...
...As of the latest labor reports, the state had lost around 200,000 jobs...
...Connecticut's per capita income rose to the highest in the nation, a distinction it still holds, barely...
...Weicker, who kept quiet on the issue, rode the same anti-incumbent tide that had defeated him two years earlier, and won with 40 percent of the vote...
...In one telling detail, the state aid package for Pratt included a grant for training workers in the Japanese management technique called Kairen, an extraordinary intrusion of government into the details of running the business...
...The state legislature passed a series of cuts in workers' compensation that had long been sought by the business lobby, and it zipped through a research-and-development tax credit structured so that United Technologies was one of a handful of companies that would derive the full benefit...
...Each percent increase in the relative tax burden, says Genetski, will produce a decrease in relative personal income of 0.3 to 0.6 percent...
...it passed by more istic dose of insult and self-righteousness...
...I can't find one experience for any country throughout all history in which a net tax increase has resulted in anything but disappointing economic conditions," Genetski says...
...Oh, yes—he's just decided not to run for re-election...
...Since World War II, the state had flourished both as a center of the defense industry and a low-tax haven for high-income commuters from New York...
...Since the first full year of collections came in 1992, this bodes ill for at least two more long years...
...their candidate finished last...
...And all this happened before the state income tax began to kick in during the last half of 1991...
...Government increased its tax bite on the community in the name of improving the business climate...
...By some accounts, state government leads the pack, with a recent growth rate of 3.1 percent...
...Then he charted the tax burden as a proportion of the national average...
...Far from class treason, Weicker's policy drew significant support from wealthy businessmen...
...they are leaders in LANS and WANS, the local-area and wide-area networking that is making IBM mainframes obsolete...
...A gadfly fixture in the U.S...
...The national recovery has passed the state by...
Vol. 26 • November 1993 • No. 11
